Cannabis and the Law

The regulatory environment is a thorny thicket, requiring skill, patience, and courage to navigate.
Photo by Roberto Valdivia – Unsplash

Since the reefer madness propaganda of the 1930s, entrenched interests have fought the legalized use of cannabis—for the thousands of industrial applications that hemp (a nonpsychoactive species of the plant) provides, as well as for marijuana and its myriad proven efficacious medical applications, let alone as a benign recreational pursuit. But as both medical science and public opinion grow increasingly aligned positively behind the once forbidden weed, municipalities across California are crafting rules that will define a patchwork regulatory environment for manufacturers, distributors, and retailers in the state.

For decades, educator and advocate Liz McDuffie has researched the medically efficacious effects of cannabis in its many forms, while diving deep into the legislation of the day, teaching vital care providers and would-be entrepreneurs alike about the implications of the evolving legal environment surrounding the plant.

Slight, with a shock of snow-white hair, McDuffie is passionate and forthright, and not above dropping an F-bomb when necessary, hands gesturing emphatically to emphasize a point. In her tiny second-floor cannabis collective she is surrounded by display cases containing various cartridges and edibles, and several large jars full of glistening flower.

“I don’t think its stupidity,” she says, speaking about restrictive cannabis legislation. “I think there is just so much entrenched ignorance. But at least you can fix ignorance. You can’t fix stupidity!”

Images: Paul Mowry/Courtesy The Pottery

When Jeremy Thomas strolls casually out into the gleaming, well-lit retail space of cannabis dispensary The Pottery to greet a visitor, he belies expectations given his role at the helm of a burgeoning multilevel enterprise navigating the cannabis economy. Thirtysomething, fit, and clean-cut, he’s definitely no old stoner, a perhaps more common school of entrepreneur in the still nascent cannabis ecosystem.

When Thomas describes his experience so far, and where he and his partners hope to take their company, it’s clear his relationship with the famous weed is all business (in fact, he says he almost never partakes himself). Thomas is CEO of Phloem, the name an organic metaphor for the integrated systems model he and his partners are working to create within the cannabis economy. A management company with particular expertise in retail, Phloem has a direct stake in several storefronts, a management deal with another, indoor cultivation facilities, and a soon-to-come manufacturing facility for oil extraction and cartridge creation.

As Thomas describes his business ethos, the conversation is filled with words and phrases like proper retail etiquette, time lines and workflow, best practices and standard operating procedure. This is not your daddy’s head shop. It’s clear every aspect of the design, from lighting, to floor plan, to merchandise display has been orchestrated to provide an engaging, informative, and satisfying retail experience. Staffed by helpful and extremely well-trained employees, Thomas’ stores take their cue from purveyors of fine wine and luxury goods. “A lot of retailers who are coming in, a lot of the big corporate money, a lot of these people are just trying to sell weed,” he says. Thomas and Phloem see a bigger picture.

With Proposition 215, known as the Compassionate Use Act of 1996, California became the first U.S. state to legalize medical marijuana; in 2003, Senate Bill 420 clarified the law’s scope and application. With the regulatory ground seemingly laid, in early 2005 Thomas and his partners prepared to open their first storefront dispensary under Prop 215 on Fair Oaks Avenue in Pasadena.

The night before the opening, city police came by and told Thomas that if he opened in the morning they’d be back, and “the conversation would go much differently.” Feeling caution was the better part of valor, he postponed the opening and consulted his attorney. The law seemed to be in his favor. Proposition 215 covered such storefronts and there were no city statutes. Then the other shoe dropped: The Pasadena City Council passed an ordinance banning all dispensaries in the city.

Images: Paul Mowry/Courtesy The Pottery

McDuffie has no illusions about the popularity of recreational marijuana and its place in the cannabis economy. “The whole medical marijuana program was really a trojan horse for recreational,” she says. Nevertheless, with a Master in Public Administration from USC, McDuffie knew poor governance when she saw it. “It was a bad law,” she says of the 2005 ordinance, “an invalid statute.” And she lawyered up to fight it, hiring Stanley Kimmel, a former city attorney for Santa Monica with long experience working with medical dispensaries.

Although her work attempting to clarify the law benefited legitimate dispensaries of all stripes, she continued to see the issue as being about access to serious medicine. Dispensaries were not necessarily her focus. “It’s for hospice care, assisted living, residential care—where the sick people are,” she says.

Due to the hazy legal picture, a handful of dispensaries nevertheless were opening in Pasadena—some joining the litigation, others trying to stay under the radar—and McDuffie, convinced of the moral imperative for easy access to such important medication, co-founded Medical Cannabis Caregivers to teach practitioners how to provide medicinal cannabis consultation services and products in a clinical setting.

In that same environment, and looking for firmer ground upon which to build, Thomas turned to the city of Los Angeles to open his first dispensary. From the beginning he and his partners sought to make every effort to comply with all regulations and to pay all required fees and taxes, despite the fact that there was little to no state oversight and tax cheats and scofflaws abounded.

In 2006, when Thomas first became involved in dispensary operation, it was the Wild West, and while the state might have appreciated their voluntary compliance, federal authorities had no respect for state law and shut them down (destroying the storefront and confiscating all product) on more than one occasion. “Just a legal shakedown was what it was,” he says.

Images: Paul Mowry/Courtesy The Pottery

The landscape shifted yet again when California legalized recreational marijuana in 2018, requiring local jurisdictions to craft law to deal with the new reality. As reported in the Los Angeles Times, the expected tax revenue windfall has not occurred. A heavy tax burden (state sales tax, excise tax, cultivation tax, and city and county taxes can add as much as 45 percent to the cost of the product) has severely impacted expected sales and returned tax revenue of less than half of what was projected. Statutory confusion and poor oversight have allowed unlicensed retailers to continue to operate, and unburdened by the taxes and fees paid by legitimate sellers, to enjoy a significant price advantage.

According to Thomas, there are more than 150 legitimately operating dispensaries in the city of Los Angeles, eventually to be capped at 380. But he estimates there are some 1,000 black-market operators and says his business has dropped by as much as 40 percent since recreational use was legalized. “Before recreational we had about 300 medical patients a day in this store. Now we get maybe 30, along with about 100 recreational users.”

While McDuffie is no fan of the tax regime SB94, the California State Senate bill that legalized and regulated recreational cannabis, it does contain provisions that have left her extremely hopeful that her original vision may come to pass. Recently she was licensed to teach SB94 to health care facilities—facilities that she says the bill specifies as being “retail license exempt” to dispense medical cannabis products.

“Clinics, hospitals, residential care, care for the elderly, nursing homes … it names every state-licensed health care facility and they need no retail license—they are licensing-exempt to sell and distribute these products!” she says, her voice rising as she speaks, concluding with a celebratory whoop. “They’ve already got the place, they’ve already got insurance, and now they are licensing-exempt. All they need is inventory. They can easily replace medical dispensaries. That’s the big news.”

Though McDuffie continues to operate, the city of Pasadena shut down other legacy operators in its jurisdiction in preparation for implementation of the new licensing regime established by Ballot Measure CC, which authorizes the licensing of up to six dispensaries, four cultivation facilities, and four testing labs, and Measure DD, which allows for the taxing of those entities (both of which were passed last year by wide margins).

In January the city began taking license applications—at a cost of $13,654 each. All applicants will be scored, and the finalists will be invited for an interview. Those selected to move on with the permit application will be charged an additional permit fee of $10,639. Thomas, originally rebuffed by the city of Pasadena more than 10 years ago, is back with a pending permit request hoping to become one of the lucky six.

Though the legal situation remains somewhat fluid, both McDuffie and Thomas are adjusting to the changes. Their constituencies may be dissimilar, yet they share a mutual commitment to goals that far transcend simply “selling weed.” Instead each hopes to help define the future of the cannabis industry in positive ways.

Images: Gray Area Agency

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